Multi-Stage Modelling of Market Disruptions

01.03.2009 - 29.02.2012
Research funding project
In many decision situations arising in economics and operations research it is assumed that the underlying systems (markets) evolve continuously. However, in the real world there are often discrete shocks to the system that are, for example, triggered by sudden political or institutional changes. Such a shock can fundamentally change the system dynamics at particular points in time. The decision maker¿s challenge is then to find the new optimal strategy. The rapidly developing field of multi-stage optimal control models (MSM) addresses such difficult situations and aims at dealing with them optimally. This project adapts and further develops MSM methodology and thereby contributes to the propagation of a new powerful tool for dynamic optimization. Using the MSM methodology we want to discuss important questions pertaining to the control of illicit drug use. (1) How should drug policy react to uncertainties, such as market disruptions of unknown length as the recent supply and price shock in the Australian heroin market? (2) Many if not most countries have to cope with drug problems of more than one substance of abuse. What is the impact of a price shock in an interacting drug market that only affects one substance? (3) How can sudden behavioural changes in a drug market be used when initiation is age-specific? We analyze these three questions by utilizing optimal control theory. Optimal control models are limited in complexity, so we enrich our analyses by developing an empirically validated system dynamics model of heroin use in Europe. This complex and hence more realistic model is interesting in its own right and furthermore allows us to test the results of the optimal control models. Over the course of this project we expect not only to find answers to these relevant questions of drug policy, but also to advance the mathematics of MSM and use this framework for other applications. Inherent nonlinearities which arise from social interactions in the drug initiation and drug markets generate multiple equilibria, history dependence, and sensitivity to initial conditions. These problem characteristics make drug policy a particularly interesting case study for MSM methods, and the structure of the associated policy problems will lead to interesting extensions of these methods.

People

Project leader

Sub project leader

Project personnel

Institute

Grant funds

  • FWF - Österr. Wissenschaftsfonds (National) Austrian Science Fund (FWF)

Research focus

  • Beyond TUW-research focus: 35%
  • Mathematical and Algorithmic Foundations: 50%
  • Modeling and Simulation: 15%

Keywords

GermanEnglish
mehrstufige Modelle der optimalen Kontrolltheoriemulti-stage optimal control
verbotene Drogenillicit drugs
Marktstörungmarket disruption
Reduktion von Leidharm reduction
altersspezifischer Einstiegage-specific initiation
Maximumprinzip von PontryaginPontryagin's maximum principle

Publications